Entrepreunerial Innovation and Actionable Foresight

August 15, 2007

LAVA - It's Hot!

LAVA isn't what you think it is. It's not boiling hot magma from a volcano bursting in LA threatening to destroy the city. Nope - LAVA is Los Angeles Venture Association and it's doing anything but destructive. I joined their yearly VC panel presentation at 7AM!!! yesterday (Tuesday the 14th) to get the scoop.

It had been some time since I was in a room of such professionally dressed individuals. I was the only one with purple hair and I enjoyed being back in executive black. Teacups of coffee, milling about - networking - taking my seat as the panel began. On it was Ted Alexander of Mission Ventures, David Dennis of Pacific Venture Group, Greg Martin of Redpoint, Phil Ressler of Clearstone, Dana Settle of Greycroft and Brody Stout of Maveron. The panel was co-moderated by Douglas Burke and Ric Kern.

The panel started out by describing a recent deal and I was
fascinated hearing about the different companies. I've always been a
little put off by VCs, for no reason - well - for one, they seem really
unapproachable, living/working in a walled garden that's very difficult
to get into unless you have a magic key in the form of an introduction.
I've also seen raising VC funds more trouble than they're worth. I've
preferred to bootstrap or find angels - not needing to raise millions
of dollars to implement my ideas. I also don't like selling, but I'm
getting over that.

The panel gave me a glimpse into the life of a VC. What they think
about. How they think. And also - that they're just people like you and
me - and they have masters they must answer to as well. They're also
following financial markets on a level I had never possibly imagined. I
left having new respect for those who watch the financial markets -
even though I think they're not much different than back door politics.
And like myself, VCs are driven by their passion (or fear or greed).

Having this perspective made me realize when it is appropriate to
interface and how to interact with a VC firm. Knowing what they want -
need - to get out of a deal is important. It's targeted marketing -
finding the right patron. And that's as much based on market research
as anything.

Here are some snippets from my notes. If I can - I'll note the VC
who said what I quote. If I have misquoted anyone - or you would like
to take credit for a quote - just drop a note in the comments and I'll
update this post.

I really like what Dana had to say about investing in companies and
small funds. "A lot of companies don't need 10 million." She talked
about the opportunity for smaller funds. I totally agree with this -
but the problem from a VC perspective (so I have heard) is the due
diligence it takes to fund 500k is not much difference from 10
million. This made me think of the Y combinator model of funding - and
later in the panel I asked a question about the opportunity for smaller
funding of early stage or ideas that don't need even 500k. I didn't
really get a good answer - just that those folks should keep their day
job and work on the weekend - and sweat equity counts for something to
VCs - but that doesn't actually solve the problem.

And maybe it's not to the VCs to solve the problem. To me - it's
about creating a vibrant technology eco-system, where companies can be
started, jump-started for little funds - to see if the idea is viable.
Wouldn't a VC want to test the viability of an idea for 50 or 100k? For
a 6-9 month stint? And if it turns into something interesting, then
roll it up into something bigger, take it live, get it acquired or cut
it loose with minimal investment?

Or is it all about big plays? This is something I'm going to be
thinking about more. How to bridge the VC community with the
entrepreneurial / blossoming LA tech community.

Ted Alexander was asked, "What are the characteristics a VC looks for in someone they fund?" and answered:

Credible Passion

Good Character and Integrity

A Clear Vision (that they can articulate quickly and clearly)

Strong knowledge in their area

Leadership qualities

They can work in a team

I was thinking - hey - I have all that, except I tend to be long winded and could work on articulating my pithy vision.

Phi Ressler was asked "What are the three top turnoffs in pitches?" and replied

(actually he started with #3 first): "You'll never find a better team"

"The consumer spending of N billions of dollars is available - all for me"

(actually #1) "I only need 3 million dollars, and not a dime more." His explained that if you can get to EBIDTA with 3 million dollars that with more money you could scale the business and go after a larger scope with more funding. He explained that someone who only asked for the 3 million was not aggressive enough for the business.

Greg Martin talked about VC distortions

VCs are optimistic

Companies have a lot of holes. You have to have a strong outward image of the company on the outside, but you don't see the ugly stuff. Public perception matters. (And this made/makes me cringe - because what people think/judge about you or your company is what they believe - not necessarily what it True.

You have to be concerned when a VC says to another one, come in on this round, when they are asking you to put in 5k and they're only putting in 1k.

Greg also talked about Silicon Valley vs Southern California (which includes LA, OC and San Diego)

SV is a tight ecosystem. Groups come together easily. Startups are in the DNA. Developers, sales, product, financial people already know each other. (Thus hitting the teamwork bullet above.)

SoCal has a very diverse economy that is loosely connected and immature. (I totally agree with this - and connecting the community to allow it to mature is my main work in organizing the LA tech community. It's creating a spoke/hub tech community - connecting the nascent tech subculture communities and bringing visibility to this structure. I also think the diversity is a blessing and boon we tech people need to learn to work with.)

Socal has great technology, S&M, entrepreneurial people - bring it all together. (HS: Thanks for the validation on my current life work, Greg!)

Where can I go to bring all the people together? (yes, LA, Socal is a big place. This is the one challenge we have living in this gorgeous part of the country.)

Someone - I don't remember if it was Greg or not - joked that when people from NorCal come to LA, they get on the 405 and are overwhelmed with how big everything is, when up north everything/one is off the 101. I was thinking to myself - just the 405 - they should venture into Hollywood, downtown, Burbank, Pasadena, El Segundo or Long Beach. I do remember myself, when I first came to LA - before I moved here - making my way to Culver City (the gateway city) for a mtg at Sony and then later headed to Hollywood and it taking F-O-R-E-V-E-R to get there. So yeah, that's the challenge - but I have solved it in regards to the geek dinner by moving the location to different areas.

Bring the people in the Venture community together - I guess that's what LAVA is all about!

I would personally say it's not only about organizing the tech community in LA (and the more I say this the bigger and vaguer it is for me) but also about circulating LA people, technology, companies and ideas to NorCal. And circulating the NorCal awesomeness down here. I must admit, I'm a bit skeptical about NorCalers down here because of the whole Norcal/Socal snobbery. It's very true - I was a Norcal snob. So the challenge is going to be NorCal getting over their ego and having some fun in the sun. Getting a little life/work balance. (I'll probably get bombed for this topic in the comments).

On Outsourcing. I missed who was talking about this - Phil maybe.

Most outsourcing is happening in Armenia (lots of mathematicians there), India and Vietnam is the newest entry.

Outsourcing can work. The key is to have engineering management at the top of the chain.

Don't outsource any project in it's entirety. Delegate to outsourcing so you get around the clock work across timezones

All in all I had a great time. It was work getting up at 6am and I plan to attend more LAVA meetings in the future. Now that the LA tech community is exploding in the many events and subcultures, with so many organizers (Andrew, Kirk, Macadaan, Crystal & Jason) I can focus my energy on taking it to the next level. In the end, my work will directly benefit those in the room - by creating a connected community with skills, desires and the will to start great companies. I hope the VCs will fund them.